Nau Inc., the Portland apparel startup that tried to forge a new sustainable business model, said today it would cease operations.

The company posted a statement announcing its closure on its Web site just more than a year after launching it.

Ian Yolles, Nau's vice president of marketing, said the company failed to close its current round of financing. The company, founded in 2005, had received more than $34 million in capital as of July 2007.

"I think to every single person here, it's just extraordinarily sad," Yolles said. "There's so much passion and commitment to the ideas associated with what we are doing and to the company as a whole. I think it's an incredibly sad day."

The company employs 60 at its Portland headquarters and 35 in its five stores nationwide, including one in Tualatin. Its fifth store opened less than two weeks ago in Los Angeles.

Nau's stores will remain open until the close of business Saturday. The Web site will continue to operate until further notice, Yolles said. Its high-end apparel is being sold at a 50 percent discount.

Nau Inc., the sustainable clothing e-tailer that generated to great buzz last year, has again scaled back the number of stores it plans to open this year and is struggling to close its latest round of fundraising in a poor lending and retail-shopping environment, company executives said.

The Portland-based company, which touts its sustainable practices, now plans to open five stores nationwide in 2008 in addition to the four it opened last year, Ian Yolles, vice president of marketing, said Wednesday.

That's a significant departure from its original plan. Before its launch 13 months ago, Nau said it would open 20 stores this year and 140 by 2010. Earlier this year, it said it would open 10 in 2008.

From February 2005 to July 2007, Nau raised $34 million in venture capital, mostly from individual and smaller institutional investors. But Yolles said the nation's tight credit markets and tough retail environment had made it harder to raise money for faster store growth.

Nau Chief Executive Officer Chris Van Dyke said this week that the startup is in the later stage of its sixth round of fundraising and is facing deadlines in what is "clearly a recession. I don't care what anybody else says." He declined to specify how much the company still needed to raise, by when or what the consequences might be if it failed. But he did say, "We're coming down the stretch.

"We're getting close to needing it done," Van Dyke said. "We have cash flow. We're an equity-financed company. We need to close rounds of funding."

Nau's need for cash, however, fueled wide speculation this week in Portland's tight-knit apparel industry that the company might be in desperate straits.

Its green, e-retail apparel venture drew considerable media fanfare, local curiosity and some skepticism about its prospects.

Started by ex-executives of Nike, Adidas, Marmot Mountain and Patagonia Inc., the outerwear maker touts sleek, high-end clothing that can be used both for a workout and a night out. It also aims to uphold business practices that address consumer concerns about sustainable living --emphasizing Web site sales, small storefronts and consumer-guided charitable donations.

But local industry observers and venture capitalists say the company might have tried shattering too many retail molds at once. Those familiar with the company say Nau's business model burns cash quickly and needs a lot of storefronts to become profitable. It does not sell its clothing wholesale through non- Nau stores as most of its competitors do, eliminating another revenue stream.

Nau has stores in Tualatin; Boulder, Colo.; Chicago; Bellevue, Wash.; and Los Angeles, which opened last month, Van Dyke said. Others are scheduled to open in Northwest Portland, Seattle, San Francisco and Boston.

Nau, privately held, gives 5 percent of all sales to charities. In February, the company said it had given $223,000 to nonprofits since its inception in March 2007, suggesting total revenue of about $4.5 million.

Tuesday,March 25, 2008
Companies make charity part of their bottom line

By Jonathan BrinckmanThe Oregonian

The usual steps toward corporate responsibility are well known: cover mass-transit costs to get cars off the road, buy office supplies made with recycled materials, match workers' charitable donations.

A growing number of companies, though, are taking it a step further by giving a fixed percentage of their annual revenue to social or environmental causes.

"It's part of our business model," said Jil Zilligen, chief sustainability officer at Nau Inc., a Portland startup that gives 5 percent of its sales revenue to charities. The retailer sells high-performance outdoor clothing online and at four company-owned store, including Bridgeport Village.

"We are trying to prove that businesses can do well by doing good," Zilligen said. Nau donated $223,000 to charity early this month, after being in business for a year.

There are obstacles. For one thing, it's hard for consumers to verify that companies really are giving away a portion of their revenue. "It would not be easy for a consumer to find out the actual dollar amount that a corporation gives to charity," said Jan Margosian, consumer information coordinator for the Oregon attorney general's office.

Some consumers also may be skeptical about big corporations, some with products that harm the environment, buying good will by giving money to charity.

Regardless of motive, corporate altruism is on the rise. According to 1% For The Planet, a Massachusetts-based network of companies that set aside a portion of revenue for environmental causes, membership has grown since early 2007 from 420 companies to 795. The organization has 35 Oregon-based members.

Total U.S. corporate donations were $12.7 billion in 2006 --the most recent year for which data are available --down from an all-time high of $14.21 billion in 2005 but nearly $3 billion more than the amount donated in 1996.

"We're very excited that our membership list keeps growing," said Strick Walker, 1% For The Planet's chief marketing and development officer. "As companies evaluate their business practices, we're finding that philanthropy is becoming a more important part of the puzzle."

Kate O'Brien, president of the 10-employee Alima Cosmetics Inc., agrees. "We do it because we have a passion for the environmental and part of our mission is to help make the world a better place." Alima is a Milwaukie company that makes natural makeup.

Business experts, however, say committing a fixed percentage of revenue isn't always a good idea because it "locks you in a way you might regret down the road," said Mark Green, an Oregon principal with Family Business Consulting Group, a Georgia-based consultant for family businesses.

Tim Shea, an instructor with the Oregon Small Business Centers, said there's also the risk of driving away cost-conscious clients and customers who don't support the selected cause.

Giving a fixed percentage of revenue "is very difficult for large corporations to do," said Carolyn Cavicchio, senior research associate of global corporate citizenship for the Conference Board, a New York-based businesses research organization. She said most businesses "back into" their philanthropy, giving a variable percentage of their pretax income to charity after they see how well they've done that year.

Such warnings don't stop people like Sheeba Oriko, 45, of Vancouver who emigrated to the United States from Kenya when she was 18. Last year she started Aviva Water Co., which directs $2.40 from every case of bottled water it sells to help get clean water to women and children in Africa. A case of half-liter bottles retails for $16 to $23.

"We want to differentiate ourselves," Oriko said. "We want to be known as the brand that focuses exclusively on helping women and children in Africa."

Oriko, who said she spent up to four hours a day as a child in rural Kenya getting water for her family, sent $6,500 last year to build a village well in southwestern Kenya, using money from her young company and other sources.

Mitch Rofsky, president of Better World Club in Portland, distinguishes between companies that engage in "cause-related marketing" and those that truly are socially responsible businesses. He puts his company, a roadside assistance and travel services agency that donates 1 percent of its revenue to charity, in the second category.

"We're a green company that attracts members who care about their impact on the Earth," said Rofsky, who after working for Ralph Nader in Washington, D.C., became president of the Working Assets Mutual Fund and the first chairman of Business for Social Responsibility.

There are, of course, other kinds of corporate giving. Portland-based Umpqua Bank, for example, gives each of its full-time employees 40 hours a year of paid time off to volunteer for organizations and schools committed to youth and community development. Last year the bank paid its 1,795 employees to volunteer a total of 71,800 hours. For many nonprofit groups, though, unrestricted cash donations are particularly valuable because the money can be used where it's needed most --including anything from paying rent to launching a new program.

Ecotrust, a Portland conservation group that specializes in the Northwest, gets money from five companies that pledge a fixed portion of their revenue.

"Those contributions are important because they show a real trust in us," said Nancy Bales, Ecotrust's development manager. "It shows that the companies believe that we will make right decisions and use the money to support the work that needs to be done."